I went through this exact same scenario last year with my ex handling marketplace insurance for our kids. The coordination part that Fatima mentioned is absolutely crucial - I learned this the hard way when our returns got flagged for mismatched allocations. One tip that really helped me: before submitting anything, I sent my ex a screenshot of the completed Part IV showing my 0% allocation and asked them to confirm they were filing with 100%. We also exchanged the policy numbers to make sure we were using identical information. Also, keep copies of any communication about the arrangement (texts, emails, etc.) in case the IRS has questions later. They sometimes request documentation to verify the allocation agreement between households. The whole process is definitely more complicated than it should be, but once you get the coordination right, it's pretty straightforward.

I went through this same situation two years ago and it was such a headache until I figured out the process. Here's what worked for me: First, make absolutely sure you have the correct 12-digit policy number from your ex - this is critical because the IRS uses this to match up the allocations between households. For the actual form completion: • Fill out Part I with your tax family info as normal • Go to Part IV (lines 29-31) for the allocation • Enter the policy details on line 30 • Most importantly: put 0% in column (e) for your allocation percentage • Make sure to check the box indicating you're using an alternative allocation method The biggest mistake I see people make is trying to coordinate this after they've already filed. Do it BEFORE either of you submit your returns. I actually had a phone call with my ex where we both had our forms open and verified we had matching policy numbers and that our percentages added up to 100%. Also keep documentation of your agreement - I saved our text conversation where we confirmed the arrangement. Never needed it, but good to have just in case. The form is confusing but once you know which sections to focus on, it's actually pretty straightforward. Good luck!

Great question! I went through this exact same transition a few years ago when I expanded beyond family clients. Having a solid engagement letter is absolutely essential - I learned this the hard way after a similar situation with missing documents. Here's what I include in mine: client must provide ALL tax documents by a specific deadline, clear scope of what services I'm providing, my responsibilities vs theirs, fee structure, and what happens if they provide incomplete info. I also have a section about amendments - if they forgot documents and we need to amend, that's an additional fee. The key is setting expectations upfront. I actually have clients initial next to the section about providing complete documentation, and I keep a checklist that I review with them during our initial meeting. This has eliminated almost all the "I forgot to tell you about..." situations. One more tip - consider requiring a retainer upfront for new clients. It shows you're professional and helps weed out people who aren't serious about the process.

Just wanted to add my perspective as someone who's been through this transition! You're absolutely on the right track thinking about formal agreements. I made the mistake of operating without proper contracts for my first year of expansion and it nearly cost me my business when a client blamed me for penalties that resulted from their unreported crypto transactions. Now I use a comprehensive engagement letter that covers all the basics others have mentioned, plus a few additional protections: a clause about electronic communications (so everything is documented), clear deadlines for document submission with penalties for late provision, and most importantly - a section stating that the return is prepared based on information provided and that I'm not responsible for undisclosed income or deductions. I also recommend getting everything signed digitally through DocuSign or similar - it's more professional and creates a clear paper trail. The investment in proper documentation and procedures will save you so much stress as you grow your practice!

As someone who started a tax business 2 years ago, I'd recommend looking at TaxAct Professional. It's significantly cheaper than the big names but handles everything you mentioned. The learning curve is steeper than some others, but the per-return cost structure worked better for me when starting out. I only paid for what I actually used instead of a huge upfront cost.

I went through this exact same decision process when I started my practice 3 years ago. After trying several options, I settled on UltimateTax Software and it's been fantastic for my small business needs. What sold me was their flat-rate pricing with no per-return fees - you pay one annual fee and can prepare unlimited returns. This was crucial when I was starting out and unsure about client volume. Their federal and state packages are comprehensive, and they handle all the special forms you mentioned including K-1s, injured spouse, and amendments. The tech support is excellent - they have extended hours during tax season and I've never waited more than 10 minutes to speak with someone who actually knows the software. They also provide free training webinars throughout the year which helped me get up to speed quickly. One thing that really impressed me was their bank product integration. They work with multiple financial institutions for refund advances and transfers, and the fees are very reasonable. The processing is seamless and my clients love the quick turnaround. The software itself is intuitive once you get the hang of it, and their diagnostic tools catch errors before you e-file. I'd definitely recommend getting a demo to see if it fits your workflow.

Has anyone used the IRS's "Offer in Compromise" program? I've heard you can settle for way less than you owe. With $70k in tax debt maybe that's better than a payment plan?

I went through something very similar - owed about $85k in back taxes after a stock windfall, then got laid off and couldn't deal with it for years. The stress was unbearable. Here's what I learned: Don't pay those tax resolution companies. I almost did the same thing and would have wasted $8k+ for services I could handle myself. First, get those returns filed immediately with your CPA. This stops the failure-to-file penalties which are brutal (5% per month vs 0.5% for failure-to-pay). Second, that $20k payment you made is definitely in the IRS system. When you file your 2020 return, make sure your CPA applies it to reduce your balance. You can verify this later with an account transcript. Third, with your new income level, you'll likely qualify for a standard installment agreement. The IRS will want financial disclosure (Form 433-F) for amounts over $50k, but they're usually reasonable about payment terms if you're compliant and honest about your situation. I ended up getting penalty abatement for about 60% of my penalties under the "reasonable cause" provision - the job loss and financial hardship were legitimate reasons. Saved me over $15k. The key is getting current with filing first, then dealing with collections. The IRS is actually pretty workable once you're compliant and communicating with them directly. Don't let the debt sit unfiled any longer - it only gets worse. You've got this! The fact that you're employed again and addressing it now puts you in a much better position than you think.

Has anyone used TurboTax for this situation? I've been using it for years but now I'm wondering if it's been calculating my federal disability retirement correctly. Does it know to use Box 2a instead of Box 1?

This is exactly the kind of issue that highlights why federal employee retirement taxation can be so tricky. As others have mentioned, you're absolutely correct that Box 2a should be used for your taxable income calculation, not Box 1. For federal law enforcement officers with disability retirements, the tax-exempt portion typically comes from one of two sources: either contributions you made with after-tax dollars during your service, or the portion of your retirement that qualifies as disability compensation under federal tax code. Since you mentioned this has been happening for years, I'd strongly recommend pulling together your last 3-4 years of tax returns and 1099-R forms to compare what was reported versus what should have been reported. The potential refunds could be substantial. One thing to be aware of - when you file amended returns for this type of correction, make sure to clearly document that you're correcting the use of Box 1 versus Box 2a amounts. The IRS sees a lot of federal employee retirement tax corrections, so they're familiar with this issue, but clear documentation helps ensure smooth processing. Also, if you have access to your OPM retirement account online, they often have explanatory documents that break down exactly why there's a difference between your gross and taxable amounts, which can be helpful supporting documentation.